First, there was good news. Facebook had topped estimates for the sixth straight quarter fueled by mobile advertising. Then, came the bad news. Facebook warned that costs would increase dramatically in 2014 and revenue in the fourth quarter would slow.
The revelations spooked the market, causing the stock to plunge as much as 11% in after-hours trading and costing Facebook about a tenth of its market value. Facebook shares had hit a high of $81.16 on Tuesday, more than double its $38 initial public offering price. But in after-hours trading they hovered around $73.
“After last quarter’s remarkable acceleration of profit growth, there was nothing to suggest that the margins would not be sustainable,” said Pivotal Research Group analyst Brian Wieser. During a conference call with analysts, Chief Financial Officer David Wehner said there would be “significant” expenses in future quarters as Facebook makes major investments in growing existing products, buying up new companies and bringing more engineering talent aboard.
Wehner predicted a 55% to 75% increase in expenses in 2015. He also forecast revenue growth of 40% to 47% in the fourth quarter, down sharply from 59% revenue growth in the third quarter.